Hyundai Starts China Auto Finance Venture to Boost Sales

The automaker, based in Seoul, joins General Motors Co. and Volkswagen AG in setting up an auto-financing business in China, as an increasing number of the nation’s younger population embrace the idea of buying cars with borrowed money. Photographer: SeongJoon Cho/Bloomberg

Sept. 25 (Bloomberg) -- Hyundai Motor Co., South Korea’s
largest carmaker, will start providing auto loans this month to
buyers in China as it seeks to increase the share of sales in
the world’s largest vehicle market.

Hyundai’s auto-financing venture aims to get as many as 45
percent of customers who buy Hyundai and affiliate Kia Motors
Corp. cars on loan in three years, Lee Kyo Chang, chief
executive officer of Beijing Hyundai Auto Finance Ltd., said in
a phone interview yesterday. It expects to match the 30 percent
annual growth in terms of volume coverage achieved by the auto-financing industry, he said.

The automaker, based in Seoul, joins General Motors Co. and
Volkswagen AG in setting up an auto-financing business in China,
as an increasing number of the nation’s younger population
embrace the idea of buying cars with borrowed money. Sales of
cars trailed analyst estimates for a second month in August as
consumers held off purchases in anticipation of more discounts
amid a slowing economy.

“Hyundai will be able to expand client base and it can
attract more buyers with loans for more expensive high-end
models,” said Yim Eun Young, an auto-industry analyst at Dongbu
Securities Co. in Seoul. “It can help Hyundai, Kia to maintain
competitive edge against China’s local makers.”

Financing Cars

About 10 percent of vehicle purchases made last year in
China were on loans, a ratio that China Minzu Securities Co.
estimates will triple by 2017 as more of the nation’s youth buy
their first cars.

The Hyundai financing arm will provide loans to retail
buyers and dealers across China, Lee said. The company will
first rely on bank loans for funding and later consider selling
bonds and asset-backed securities when the venture meets local
regulations to sell such notes, he added.

“We’ll focus on risk management and stabilization of
operation for the first several years,” Lee said by phone from
Beijing. “We’re confident we can provide competitive services
after stacking up experience.”

Hyundai has forecast to sell 2 million Hyundai and Kia cars
annually in 2016 in China, Lee said.

The carmaker opened its third Chinese factory in June and
aims to increase wholesale shipments in the market 6.8 percent
to 790,000 units this year from 2011, according to a company
presentation in January. Kia Motors targets to boost sales 6.4
percent to 460,000 units this year, it said in January.

Slower Expansion

Wholesale deliveries, including multipurpose and sport
utility vehicles, gained 11 percent to 1.22 million units in
August, the China Association of Automobile Manufacturers said
Sept. 10. That compares with the 1.24 million average of 14
analysts surveyed by Bloomberg.

Economic growth in China moderated in the second quarter to
the slowest pace in three years.

Beijing Hyundai Auto Finance, Hyundai’s second overseas
car-financing venture, has an equity capital of 500 million yuan
($79 million) and this can be expanded depending on growth in
the business, Lee said.

Auto financing companies provided about 200 billion yuan
of loans last year, according to carmaker Guangzhou Automobile
Group Co. The China Association of Automobile Manufacturers
estimates the market for vehicle loans will expand to 525
billion yuan by 2025.

GM, VW

GM’s local auto-financing venture GMAC-SAIC Automotive
Finance Co. in 2004 began providing loans for Buick, Chevrolet
and Cadillac cars. Volkswagen, the second-biggest foreign
carmaker in China after GM, plans to spend 2 billion yuan to
expand auto-financing in China this year, Cai Xue, a VW
spokeswoman, said in July.

Non-performing auto loans surged in the 1990s, owing to a
lack of risk controls such as credit scoring. That led the
central bank to suspend new auto loans from 1996 to 1998,
according to He Liming, head of the China Automobile Dealers
Association.

“We plan to keep bad-loan ratio at industry’s average of
0.3 percent to 0.5 percent from 2016 although the rate may be a
bit higher in the beginning phase,” said Lee. “We feel a bit
fortunate we’re market follower and not the leaders as the early
birds had tough time at the beginning due to the absence of a
credit bureau.”